Sustainability transformations — how can entire markets become more sustainable?
Currently, the food industry is fundamentally flawed. It is responsible for roughly 20% of global greenhouse gas emissions, three quarters of humanity’s water footprint, and is the main driver of biodiversity loss. Other notable sustainability challenges include deforestation, soil erosion, and ocean acidification.
While there obviously are many different forms and agricultural practices, different products and crops that are grown all over the world, the main driver for the aforementioned issues is industrial animal farming. Essentially, it just is quite ineffective to use animals as an intermediary to transform plant-based inputs into meat or dairy products.
This issue is exacerbated by the fact that when countries develop economically, their consumption of animal products increases, their diet worsens. Consequently, in a nutshell, quite a dire outlook for the food industry. But: There might be hope!
Whenever I talk to investors in the food industry, two words keeps on coming up: alternative proteins. Utilizing novel technologies, an increasing number of startups have embarked on a quest to create meat and dairy product alternatives that are increasingly close to the “real thing.”
This is achieved mainly by utilizing precision fermentation approaches. Precision fermentation is almost seen as a silver bullet solution by several investors and experts in the industry. Basically only using plants, funghi, and bacteria, precision fermentation has a much smaller environmental footprint and is much more sustainable.
Therefore, the food industry currently is a great industry to study the sustainability transformation of markets. I had been asking myself the same question for a while: How do whole markets become more sustainable? Well, as for most things, there’s a theoretical framework investigating this.
When looking at sustainability transformations in the academic literature, a market initially starts off with incumbents with large market shares, whose business models’ sustainability quality is assumed to be on the low end. At the same time, sustainability startups are entering the market. Naturally, their market share is small, but their sustainability quality is high.
So how can the market as a whole become more sustainable? By moving to the top right quadrant. In order for that to happen, there are three options: the startups’ market share could grow, the incumbents’ sustainability quality could improve, or both.
In practice, incumbents and startups in the same market obviously aren’t entirely separate entities — frequently, they interact with each other. And in the alternative protein space, they often interact through strategic partnerships to create value for both parties.
For example, the world’s largest brewing company, AB InBev recently partnered with The Every Company, an alternative protein firm focused on creating eggs. By using AB InBev’s fermentation know-how and their existing fermentation tanks, the partnership enables The Every Company to speed up its path towards commercial scale operations. Building fermentation capacity would, for an array of reasons, otherwise be a big challenge
This illustrates how incumbents and startups collaborate, and how their collaboration actually leads to not only an increase in incumbents’ sustainability quality, but at the same time also an increase in the startups’ ability to capture market shares.
What can be done to facilitate this cooperation? That’s what we want to find out at Hungry Ventures — stay tuned!
